Show. It’s important to note that in Compound Finance, a user can only just be a lender OR both a lender and borrower simultaneously. This means that for every 1 BAT you lend, you’d receive 0.2575 BAT at the end of the year. No single trader had the scale to bring down the London Whale, but once his positions were inferred, the huge potential profits of liquidating JPM created a spiral even a massive war chest could not overcome. in proportion to the interest being accrued in that market. This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). Depending on the USD value of COMP, this could essentially be a largely profitable way to stake (or borrow) tokens and earn yield. Query past events with getPastEvents().See Solidity documentation.In theory options parameter is optional.In practice an empty array is returned if options is not provided with fromBlock and toBlock set.. After analyzing the contracts, I believe the incentive mechanism is likely to function smoothly, but the outcome may augur poorly for the price of REP (sorry… had to). The introduction of the COMP token has drastically changed the interaction of users on the protocol by heavily incentivizing activity. We proceeded to take a loan of 1,000 BAT ($0.246). The larger sleeve will be used to borrow REP short on Compound. In another example, we have supplied the protocol with 750 USDC (75%) and 250 USDT (0%). r/Compound: Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications. Compound Finance is a protocol, currently deployed on the Ethereum network, for automatic, permissionless loans of Ether and various ERC20 tokens. LT is clearly an experienced operator with a large war chest and the technical savvy to programmatically manage these positions, but I do wonder if they have considered the potential Schelling point they have created by using 7% of REP’s supply as collateral for a margin loan. At the time of writing, ETH, USDC, DAI and BAT have a collateral factor of 75%, while ZRX (60%) and REP (40%) have lower collateral factors. You are now equal parts long and short REP, although you earned 5% extra REP from the liquidation. The distribution will be allocated to each market (ETH, USDC, BAT, etc.) This site uses Akismet to reduce spam. The protocol has recently launched its COMP token. Compound Finance into 2021. You earn 5% not once, but on each and every liquidation transaction. However, it’ll be smart to leave yourself some wriggle room and borrow less than the maximum amount you can possibly borrow. This means that we have a 43% utilization rate ($246/$562.5 = 43%) and a “liquidity buffer” of $315. This article is not intended as, and shall not be construed as, financial advice. The impact of this strategy would typically face a haircut at the very end due to the need to buy enough REP on exchange to cover your short. Bear in mind that your account will not be allowed to exceed its borrow limit, or it will risk liquidation. Arguably the most important variable in Compound Finance is an asset’s collateral factor. The introduction of its COMP token on June 17 th sent the crypto world into a frenzy as users rushed to deposit their assets and earn unholy amounts of interest along with daily rewards paid in COMP for participating in the ecosystem as a lender and/or borrower. LT actually kept another 3% of REP’s total supply in a separate address, so in total LT controls over 10% of the REP supply. Automating this strategy, you could begin to rapidly grow your initial capital with each successive liquidation. This benefits both parties, as the party with the surplus gets interest for lending, and the borrower can utilize the extra cryptocurrencies for his or her own purpose. Interest payments are distributed daily, denominated in the token you’ve supplied, and based on the running interest rate. The collateral factor determines how much you are allowed to borrow. But there is no yield curve. Instead, you lend them to the Compound Finance “liquidity pool,” where borrowers can borrow them. Learn how your comment data is processed. Given the significant size of LT’s loan, a small trader with a little scripting could run iterative liquidations and repeatedly compound their capital by 5% each time. The platform seeks to bridge the gap between two major flaws in the crypto space. Remember that LT is well capitalized and could attempt to squeeze your short position, or they may simply want to defend the price of REP when they observe their loan being liquidated. Under this scenario, Compound basically offers up a portion of LT’s REP tokens at a 5% discount to incentivize market participants to return LT’s loan to a 150% collateral ratio. In addition, while well-vetted and audited, the risk of flawed coding may exist, albeit a small one. However, the other risk to keep in mind is that if the price of REP spikes, the loan you took out in REP could be liquidated regardless of your net exposure. In our case, we’ve supplied approximately $125 worth of BAT (500 BAT). Compound Finance is a protocol, currently deployed on the Ethereum network, for automatic, permissionless, and trust-minimized loans of Ether and various ERC20 tokens. This story reminds me in some ways of the infamous London Whale trader at JP Morgan who, like LT, continued to pile more and more leverage into a massive margin short position on a credit spread between investment grade and LIBOR rates using CDS swaps. The thirty-second governance proposal would distribute COMP tokens to offset losses incurred by liquidated DAI stablecoin positions. Buffet said it best: “Only when the tide goes out do you discover who’s been swimming naked”. Lenders on decentralized finance (defi) protocol Compound on Thursday got liquidated for a massive $103 million, according to analytics provider Loanscan. Let’s look at the Compound liquidation process to analyze why. If your liquidity buffer is too narrow, repay some of the loan to ensure that you do not get liquidated. Hashtag Capital was subsequently acquired by CoinMarketCap in mid 2019. (Click here to install a Metamask wallet: you will need to have one to access the Compound Finance app.). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. Learn more, Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. It is one of the most widely used decentralized finance systems in the ecosystem and helps demonstrate the power of the technology. This would also greatly increase the frequency of liquidation transactions since the existing strategy is bounded by the deposit and withdrawal times of the exchange you select. If someone needs to take a loan for 3 months, then he needs to finance this for 90 days with variable rates. What is Compound Finance? In every market, 50% would be earned by the borrowers, and 50% by lenders. Read more about it in the section titled “COMP Token and Liquidity Mining” below and find out how incentives apply to using the protocol. Could we see a similar dynamic here? Continue until LT’s loan is back to a %150 collateral ratio. At this time, there are three types of wallets that can be integrated with the Compound Finance app: Coinbase Wallet, Ledger and Metamask. Leverage has a way of making you look like a genius or a fool. The ABI can be obtained from Etherscan. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com, Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. There have been a few excellent articles and Twitter threads highlighting the current situation on Compound Finance where a trader has opened a massive loan using 7% of the supply of Augur’s REP token. A governance vote on the Compound Finance DeFi platform regarding compensation for users that lost finds through DAI liquidations is just hours away from conclusion with votes against dominating. This article is intended to be used and must be used for informational purposes only. If liquidation fails to proceed in an orderly money and there is a run by lenders to withdraw capital, many lenders, who are currently supplying over 2 million Dai to earn the lucrative interest rate, could be at risk of principal loss. Deposit Tokens. Ideas. Thanks to excellent analysis and investigation by the authors of the above threads and articles, we know that LT used the DAI loan to purchase ETH which they added to their existing Maker CDP. Take note that risks are both ways! In this case, that amounts to 0.6 * ($125) = $75. A newsletter that brings you week's best crypto and blockchain stories and trending news directly in your inbox, by CoinCodeCap.com Take a look. I originally attempted to post this proposal on the Compound Governance Forum under the DAI Liquidation Event thread, however after over 22 hours, my attempt to post this important information regarding the improvement and security of the Compound protocol is still “awaiting approval” from the Compound team. However, since Matteo’s article, LT has added more REP to the loan from Compound which seems to support the idea that LT simply wants to increase exposure to ETH at these prices without reducing their long exposure to REP. Family run liquidation business located in Delaware Ohio! Although MakerDAO was the first DeFi project to allow users to borrow, Compound was the first to offer pools of loans without intermediaries, which allowed users to earn interest on their crypto deposits . Get updates direct in your inbox by entering your email! However, the beauty with Compound is you can simply cover your short off exchange using the liquidateBorrow() function to draw out more of LT’s REP to close your position. Now it may be apparent, but each liquidation grows your total capital by 2% (5% reward x 40% of portfolio), which you would split and add back into each sleeve of the strategy. As long as your borrow balance is greater than your borrow limit, other participants are allowed to liquidate your assets and get an 8% discount on your collateral. Table of Contents:– How Can I Use Compound Finance? After supplying the BAT, we now can sit back and collect interest! Here are the steps assuming a starting portfolio of 100% DAI: Thankfully this can be scripted and automated without too much difficulty. These include selling REP for ETH or borrowing ETH directly from Compound, and helps us draw some implications about LT’s motives. It’s easy and free to post your thinking on any topic. This is a legitimate concern as REP’s price could easily fall more than 5% before you manage to send it to an exchange and sell it. Before anything, make sure that you’re connected to the right Metamask wallet. Given the significant size of LT’s loan, a small trader with a little scripting could run iterative liquidations and repeatedly compound their capital by 5% each time. Unfortunately, there is not yet a highly liquid DEX market available for REP, so the strategy described is probably the optimal approach until that changes. The views and opinions expressed in this article are the author’s own and do not necessarily reflect those of CoinMarketCap. Five Essential Steps. It started to lose ground to rival protocols offering better returns through food themed yield farms as the degen (degenerate) farming frenzy gathered steam. He started his career as a professional derivatives trader in the traditional markets, trading bond and commodities futures. As you have an existing loan of 100 USDC, your loan will be up for liquidation. Robert Leshner, Founder of Compound Finance, addressed the DAI liquidation event that took place between 2:00 am to 1:00 am Pacific Time on Thanksgiving morning. Send REP from your wallet to the exchange, and the DAI from the exchange to your wallet. Explore, If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. Rebalance the two sides if needed. Compound relies on Coinbase as a price feed to help keep the protocol over-collateralized; which is great unless the DAI peg is manipulated. Unfortunately, this was the case, causing upwards of 85 million DAI in liquidations. DSA Address. It is one of the most widely used decentralized finance systems in the ecosystem. Compound Family Liquidation Sales. The risk of liquidation occurs when the value of the collateral becomes less than the value of the loan. If you are borrowing stablecoins with non-stablecoin collateral, your liquidation risk happens when the price of crypto falls. liquidation. Any time the total value of your borrow exceeds your borrowing capacity, your collateral (BAT) starts to get liquidated in exchange for the borrowed asset (DAI) at a lower than market rate to pay it back, to the point where the total value does not exceed your borrowing capacity. A user can’t just be a borrower. Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications. Now, let’s proceed to supplying (lending) Basic Attention Token (BAT). Import the ABI JSON file using require.Filters cannot be used because the … Enter your password, and click “Connect” on the following “Connect Request” pop up. As a lender, you don’t lend your cryptocurrencies directly to the borrower. However there are two important points to highlight: Let’s consider combining these two ideas into a low risk trading strategy. After all, as Matteo mentions, the protocol only offers a 5% incentive to market participants for repaying the loan. Discover the latest insights and tools to help you navigate the crypto space better. Compound Finance is an Ethereum-based, open-source, decentralized protocol that allows the users to lend and borrow cryptocurrencies by locking up their assets in smart contracts. Some have speculated that LT used Compound to avoid crashing the price of REP, but as you can see, it can be used by short sellers just as effectively in the opposite direction. Forum for Compound Finance governance discussions. Once you’ve supplied a token, you’re able to use what you’ve supplied as collateral to take out a loan (borrow). QR Code. In terms of Compound, if you were to face liquidation, the penalty would be 8%, meaning your collateral would be sold off at a ~8% discount to cover the debt. The Compound Protocol lives on the Ethereum blockchain — it’s open-source, immutable, and accessible by any Ethereum account, forever. Upon reviewing this article, Calvin, the strategy lead at Compound, also pointed out that you are lending the original 60% of your initial DAI and borrowing REP, earning carried interest for the lifetime of the strategy. LT also appears to own over 1% of the supply of MKR tokens, and has a large Maker CDP open with about 1/1000th of the total ETH supply with a value over $8 million today. In effect, LT used their REP tokens as collateral to increase their margin long position on ETH. Compound is an algorithmic, autonomous interest rate protocol built for developers, to unlock a universe of open financial applications. So to quickly summarize, we have a relatively low risk way for traders to quickly earn a modest but continually compounding return on their capital. This happened after what appears to be an oracle exploit on the Dai stablecoin. If you amass enough profits, the slippage from buying back REP could be substantial. However, this annual percentage yield (APY) rate is not fixed, and dynamically changes due to market supply/demand forces. First, here’s a selection of what’s been written so far: Safegaurd your crypto, buy a Hardware wallet. DAI Liquidation Event The Compound protocol uses Coinbase Oracle for account liquidity calculations, anchored to within 20% of the Uniswap time-weighted average price. More importantly, with the introduction of DeFi, the gap between people with a surplus of cryptocurrencies and people with productive uses and investments for those cryptocurrencies can now be bridged. You can check the deposited token balances on … Time will tell, but I suspect if we get anywhere near LT’s liquidation price (REP $3.20), we may see a rapid and reflexive collapse in the price of REP. He saw the trading opportunities that existed in Bitcoin Futures and Swaps and co-founded Hashtag Capital, a BTC-based hedge fund in 2018. However, it may be difficult for LT to pull this off quickly enough to cause a liquidation since Compound sources price data from three exchanges and uses the median value as the protocol price. Programmer/Trader on twitter at https://twitter.com/_Tony_W__, Coinmonks is a non-profit Crypto educational publication. In addition, interest grows the longer your loan is held — this means that the borrow balance also increases over time! Get Best Software Deals Directly In Your Inbox. BAT also has a collateral factor of 60% — this means that for every $1 of BAT you’ve supplied, you can borrow up to a maximum of 60% of the value of the deposit of any asset on the Compound Finance protocol (excluding BAT). We will share often as we explore cryptocurrency and blockchain around the world with you. Notice that the current yield of lending BAT is currently at 25.75%. LT also retains substantial REP and ETH reserves (in their CDP) they could mobilize to defend their margin long plus a large stack of MKR they could potentially sell. Compound Finance is an algorithmically-operated, decentralized, interest rate protocol for lending and borrowing cryptocurrencies. Either way this risk can be mitigated by monitoring the price of REP and rebalancing collateral into your loan as needed. Select Token. In this article, we’ll take things one step further and explore what could happen next thanks to the unique features offered by Compound. Compound offers one of the most straightforward borrowing and lending experiences in DeFi, and its liquidation process follows matches this simplicity. As the price of crypto can fluctuate greatly, your liquidity buffer always changes. For the purpose of this demonstration, let’s go with the most popular one, Metamask! From the speed of distribution (4.229 million tokens at 2,880 per day), COMP will be “rebated” to users of the platform for the next four years. As you can see above, the APY rate had already changed (from 25.75% to 25.99%) from the time it took to confirm the transaction for lending of the 500 BAT. Everyday, approximately 2,880 COMP tokens will be distributed to users (borrowers and lenders) of the protocol. However, as several prior authors have noted, the current implementations of decentralized finance apps like Compound, for better or worse, leaves user activity pseudonymous but open to scrutiny. Five Essential Steps– Risks of Compound Finance– COMP Token and ‘Liquidity Mining’– Concluding Notes, First, you have to go to compound.finance and click on “App.”, Before you’re able to access the Compound Finance dashboard, you would have to connect the app to your crypto wallet. By signing up, you will create a Medium account if you don’t already have one. Always watch your borrow limit and always have a safe liquidity buffer. In this case, we are collecting 25.76% interest on 500 BAT! Compound has recently become the largest lending protocol in Decentralized Finance (DeFi). With all this being said, LT’s loan currently remains overcapitalized at +300% at the time of writing. Write on Medium, “What’s going on with Dai on Compound.Finance”, A Bitcoin Hedge Fund’s Return: 25,004 Percent (That Wasn’t a Typo), A Human Rights Activist’s Response to Bitcoin Critics, The Early Evolution of Art On The Blockchain — Part 1, Robinhood Opens Crypto Trading for New Yorkers, Bitcoin Market Analysis: The Blow Off Top, A Paradox of Value: Water, Diamonds, Cryptocurrencies. The 60:40 ratio was selected so that given the %150 collateral ratio, the REP we borrow will be equal in value to the second portfolio sleeve. There is some risk incurred between steps 1 and 2 when the trader is net long REP. From that point forward, the strategy remains market neutral to the price of REP. Five Hundred Dollar Rule: A regulation that prevents a bank or firm from liquidating a client's account to cover a margin call, if the amount of … The impetus for this article came from a debate around a point Matteo brings up in his article: if LT defaults on the REP loan, will Compound’s liquidation mechanism function properly and prevent losses for lenders? Note: After reviewing this article, Calvin from Compound also mentioned that the team has been closely been monitoring this situation and is exploring possible techniques to obscure user transactions, perhaps using a protocol like AZTEC. As a project based around “community driven … The amount you’re able to borrow is dependent on the amount you’ve supplied to the protocol, as well as the “Collateral Factor” of the asset you’ve supplied. Check your inboxMedium sent you an email at to complete your subscription. A Detailed Beginner's Guide - Mycryptopedia Compound Finance is an algorithmic, open-source protocol that allows for the creation of money markets on the … APY will continue to fluctuate every ETH block. Any Ethereum address can post the signed/reported price on-chain, which allows for a permissionless and autonomous price feed that rapidly de-risks accounts.. From approximately 12:00am to 1:00am … Realistically, you would want to split closer to 70:30 so that your loan has some margin of safety from liquidation itself. There are currently two types of cTokens: CErc20 and CEther. Review our Privacy Policy for more information about our privacy practices. It is a platform where users can frictionlessly supply (lend) cryptocurrencies to be used as collateral, in order to subsequently borrow crypto assets based on interest rates set by demand and supply forces. A number of hedge funds, ironically including a separate JPM trading desk, deduced what was going on and took the other side of the trade to drive prices up, liquidating JPM and forcing a $6+ billion loss. Users can directly lend their assets to the Compound Finance “liquidity pool” from which a borrower can borrow by locking up their assets as collateral. REP would need to fall over 40% from its current price to close to $3.00 for liquidation to become lucrative. To summarize, a large trader, who we will refer to as “LT” moving forward, sent 7% of the total REP supply to Compound as collateral for a large DAI loan. Go ahead and sell the REP while also liquidating LT’s loan with the DAI in your wallet. For example, if you deposited 1 ETH when the value of ETH is $200, you will be allowed to have a borrow limit of $150 worth of tokens. Liquidation allows a participant of the protocol to repay up to 50% of your loan for you, and the participant that performed the liquidation would receive a proportionate amount of your collateral, at an 8% discount (at the time of writing). A governance vote on the Compound Finance DeFi platform regarding compensation for users that lost funds through DAI liquidations is just hours away from conclusion with votes against dominating. Compound Finance Vote on DAI Liquidation Compensation Nearing Close 14 December 2020 tokenandcrypto 1 Comment COMP , Compound , Dai A governance vote on the Compound Finance DeFi platform regarding compensation for users that lost finds through DAI liquidations is just hours away from conclusion with votes against dominating. This strategy, while potentially lucrative, is not fully risk-free. How to query LiquidateBorrow events?. Ideally, REP could be sold directly through a DEX such as Uniswap, eliminating the need to hold REP or open a short position at all. To borrow, first, you’d have to toggle on the “Collateral” button of the token you’ve supplied. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. We need to sell REP for DAI to turn this into a proper short position. This means that we have a borrow limit of $562.5. The thirty-second governance proposal would distribute COMP tokens to offset losses incurred by liquidated DAI stablecoin positions. He stated that, “Fundamentally, the protocol and price feed performed as designed; real trading, on America’s largest exchange, was used to aggressively reduce the risk of borrowers in the … The Collateral Factor for each asset is determined by Compound Finance’s governance mechanism. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Coinmonks is a non-profit Crypto educational publication. Compound Finance Vote on DAI Liquidation Compensation Nearing Close December 14th, 2020 A governance vote on the Compound Finance DeFi platform regarding compensation for users that lost finds through DAI liquidations is just hours away … You can do this by checking that the address on the top right of your dashboard corresponds with your wallet address. Your wallet now contains two sleeves of REP and DAI of equal value. Besides earning yield while staking tokens on the Compound Finance protocol, you can also utilize the collateral that you have staked to borrow the available crypto assets on the platform. It is a platform where users can frictionlessly supply (lend) cryptocurrencies to be used as collateral, in order to subsequently borrow crypto assets based on interest rates set by demand and supply forces. The collateral factor dictates how much of an asset’s value is borrowable. cTokens are the primary means of interacting with the Compound Protocol; when a user mints, redeems, borrows, repays a borrow, liquidates a borrow, or transfers cTokens, she will do so using the cToken contract. During 2019, $10,375,064 were repaid by liquidators using Compound version 2, resulting in a total of $518,752 profit for liquidators. Return to step #3 and repeat. Clicking on “Metamask” will prompt a login pop up. In this example, if the value of BAT shot up to $0.56, we would be at risk of liquidation, and participants could choose to pay back the BAT that we owed and receive the USDC collateral at an 8% discount. These smart contracts also algorithmically determine the interest rates. This means that the more assets you stake, the greater the borrow limit you are entitled to. Send the REP to an exchange of your choice. Compound (COMP), a decentralized finance lending platform (DeFi), can be seen as the catalyst for the yield farming frenzy that started in mid-2020. The innovative incentive-based liquidation process seems to work, as mostly all of the risky borrowings are quickly liquidated once they cross the liquidation threshold. How Can I Use Compound Finance? Compound was the leading DeFi protocol by total value locked in mid-2020 as liquidity surged in propelling collateral levels to almost $1 billion by mid-August. 268 likes. Compound Finance is an algorithmically-operated, decentralized, interest rate protocol for lending and borrowing cryptocurrencies. Compound Finance has only variable rates, which are calculated at every new Ethereum block. There is some initial risk taken to borrow REP, but the lucrative returns outweigh this risk. A governance vote on the Compound Finance DeFi platform regarding compensation for users that lost funds through DAI liquidations is just hours away … Cryptocurrencies : 8,534 Markets : 34,302 Market Cap : $1,753,535,935,123 24h Vol : $159,808,590,114 BTC Dominance : 61.7% Liquidity Mining With Compound Finance — Just a Fad, or the Latest Toolbox After IEO, ICOs? Now that you’ve connected your wallet to the Compound Finance app, you will be able to access your dashboard! Transfer tokens to your account (DSA) address, the owner(s) can withdraw anytime. In the example above, if you deposited 1 ETH ($200 per ETH), and borrowed 100 USDC, you would be within the borrowing limit. Markets Governance Developers Prices Docs ... have low collateral factors. Liquidation In the event that the size of your debt outpaces your maximum borrowing factor, Compound exchanges the over-borrowed asset for the borrower’s supplied collateral, at a slightly lower than market rate. Based on the above, and with a reference price of COMP at $233 (at time of writing), the interest yield from both the protocol and COMP “rebates” can be quite significant. Topic Replies Views Activity; Improving Liquidation. The Compound team has also mentioned on their Discord channel that their partners, including hedge funds and other financial institutions, are engaged with the protocol and prepared to take on the liquidation process. Once that’s been done, you can select the cryptocurrency you would like to borrow under the “Available to Borrow” list. Let me know in the comments if you’re interested in seeing some sample code. Take the larger sleeve, use Compound to deposit DAI and borrow REP. Compound Finance is a leading decentralised finance (DeFi) protocol which allows users to deposit and borrow cryptocurrencies, and earn interest whilst doing so.How Compound does this is by creating liquid money markets for cryptocurrencies by …
Hancock County Ms Evacuation, Yugioh 10th Anniversary Pack English, Phlebitis From Iv Drug Use, Dumb And Dumber Music Credits, Chistes Que Matan De Risa, Gotoh Gtc201 Vs Gtc202, Land Ho Songs, Buzzken Mk6 Tdi,